Some days the WTF-o-meter just doesn’t go high enough, and such is the case with the latest FCPA enforcement action from the Securities and Exchange Commission. Fellow compliance travelers, prepare yourselves.
The SEC dinged World Acceptance Corp., a consumer loan business based in South Carolina, for a bribery operation the company’s Mexico subsidiary ran in the 2010s. Total damage was $21.7 million, including $17.8 million in disgorgement, $1.9 million in interest, and $2 million in penalties.
So here’s what happened, according to the allegations laid out in the SEC settlement — which, let us note, the company in question neither admits nor denies.
That subsidiary, deliciously named WAC de Mexico, had a line of business offering loans to Mexican state and federal government employees. To keep collection risks low, WAC de Mexico had an arrangement where customers’ loan payments were deducted directly from their paychecks and sent to WAC de Mexico accounts.
Of course that meant WAC de Mexico needed contracts with government agencies to keep those arrangements going. And to keep those contracts coming, WAC de Mexico offered bags of cash — literally, bags of cash — to the government officials who oversaw those contracts.
From 2011 through mid-2017, WAC de Mexico funneled roughly $4.1 million to Mexican officials. At least $1.5 million was paid to government officials, $580,000 went to union officials, and another $480,000 went to third party intermediaries who used the funds to pay government officials and union officials.
If you do the math, you’ll notice that $1.5 million + $580,000 + $480,000 only equals $2.56 million. WAC de Mexico’s accounting and cash controls were so loosey-goosey the SEC couldn’t figure out how the remaining $1.5 million in bribes were allocated:
Due to the lack of appropriate record-keeping at WAC Mexico, it is unclear how the remaining $1.5 million in payments were split between those made directly to government officials or union officials, or an intermediary who used the funds to pay the officials.
To say that WAC de Mexico had poor accounting controls might even be misleading, because that implies that the company had any accounting controls at all, and I’m not sure whether what WAC de Mexico was doing qualifies.
For example, the business had no vendor management system whatsoever: no master list of vendors, no due diligence processes, no formal procedures to approve new vendors. The company used manual checks for payment, which allowed managers to pre-sign blank checks, which meant the company had no way to enforce any spending limits on payments to vendors.
WAC de Mexico did compile a monthly spreadsheet of checks paid every month, and listed the bribes as “commissions.” Then that spreadsheet would go to the higher-ups at WAC HQ in South Carolina — without copies of invoices or any other documentation.
You see the picture painted here: WAC de Mexico had a mess of an accounting function, which let executives and middlemen bribe government officials for years using bags of cash. We don’t even know anything about the bags, although the SEC did say WAC de Mexico officials used “large bags.”
Now we shift to other allegations against WAC in the C-suite.
WAC Leadership Failures
At WAC headquarters in South Carolina, several executives did try to raise concerns about WAC de Mexico and poor internal controls generally — but they were thwarted, the SEC order says, by WAC’s chief executive officer from 2015 to 2018, Janet Lewis Matricciani.
For example, in October 2015 the vice president of internal audit voiced concerns about poor compliance practices, and specifically mentioned WAC de Mexico. Matricciani fired him and then consolidated internal audit and compliance into one function. She also had that single VP of audit and compliance report to her directly, when previously the VPs of audit and compliance each reported to the audit committee.
Matricciani then pressured the new VP of audit and compliance to eliminate staffing and run a more “bare-bones” function, that vice president told the SEC.
In late 2016 Matricciani reorganized yet again, and had the VP of audit and compliance report to the general counsel. We’ll let the SEC order speak for itself about what happened next:
Shortly thereafter, the VP voiced concerns that the internal audit and compliance functions were not sound, and [Matricciani] terminated her. The then-general counsel took over as the head of internal audit and compliance, even though the general counsel had no prior audit or accounting experience. [Matricciani] also told the then-general counsel and an internal audit director that she did not care whether WAC had a “world class [internal] audit function.”
Pause here to admire the phrasing of the SEC. The order never flatly accuses Matricciani of firing people for sounding regulatory alarms, an allegation Matricciani denies. It says, “The tone at the top from WAC management did not support robust internal audit and compliance functions, and undermined the effectiveness of those functions.”
Several months later WAC’s bribery trouble in Mexico finally came to light. WAC’s management and its external audit firm both coughed up a material weakness in financial reporting in March 2017, specifically citing WAC de Mexico’s vendor management and accounting processes.
Even better: WAC even flagged a material weakness “in the company’s entity-level control environment related to adherence to U.S. and foreign laws and regulations, including the FCPA.”
Translation: WAC’s own management admitted that its leadership was a material weakness. Management is responsible for the control environment, which in this case was Matricciani. Then she had to sign the 10-K including those words.
WAC’s board finally parted ways with Matricciani in January 2018, but we have a final strange epilogue to her tale.
Two days after Matricciani was sent packing, she wrote an email to Mick Mulvaney, then acting director of the Consumer Financial Protection Bureau, asking that she be considered for the director role permanently.
“Now that I am available,” Matricciani wrote, “I would love to apply for the position of the director of the CFPB. Who better than me understands the need to treat customers respectfully and honestly… I am a consummate business professional.”
We should note here that just days before Matricciani’s ouster and her solicitous email to Mulvaney, the CFPB closed an investigation into predatory lending practices at WAC. We should also note that Mulvaney is a former congressman from South Carolina, where WAC has been based for years, and the company regularly donated to Mulvaney’s campaign war chest.
WAC has since sold its Mexican subsidiary, and now has no overseas operations. The Justice Department has declined to bring any charges against the company, citing its voluntary disclosure, cooperation, and remediation after everything hit the fan in March 2017.
These days Matricciani is a senior executive at Home Point Financial, a mortgage firm in Michigan. The press release announcing her hire notes that Matricciani is a member of C200, “an invitation-only membership organization of the world’s most successful women business leaders.”
UPDATE: After this article was posted, the press release announcing Matricciani’s hiring was deleted. You can, however, find an archived copy thanks to the Internet Wayback Machine.
Also, Matricciani released a statement through a spokesman, which we post here in full:
“Ms. Matricciani had no knowledge of the alleged misconduct, which reportedly began years before she joined WAC, and which was not identified by the legal, compliance, audit, or financial functions of the company. Once the alleged conduct was discovered, the company promptly reported it to the authorities. Ms. Matricciani was not consulted in connection with the SEC order and denies the allegations in the order relating to her management of the company.”